ckx20170630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

 

For the quarterly period ended June 30, 2017

 

 

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

 

 

Commission File Number 1-31905

 

CKX Lands, Inc. 

(Exact name of registrant as specified in its charter)

 

 

Louisiana

 

72-0144530

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

     
     

1508 Hodges Street

   

Lake Charles, LA

 

70601

(Address of principal executive offices)

 

(Zip Code)

     
 

(337) 493-2399

 
 

(Registrant’s telephone number)

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     

Yes       No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes       No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 Large accelerated filer

☐ 

Accelerated filer

 

 

 Non-accelerated filer

Smaller reporting company

 

      Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐     No  ☒

  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,942,495

 

 
 

 

 

CKX Lands, Inc.

Form 10-Q

For the Quarter Ended June 30, 2017

 

 

Table of Contents

      Page

Part I. Financial Information

   
         
Item 1.  

Financial Statements

   
         
a.  

Balance Sheets as of June 30, 2017 and December 31, 2016 (Unaudited)

 

1

b.  

Statements of Income for the quarter and six months ended June 30, 2017 and 2016 (Unaudited)

 

2

c.  

Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2017 and 2016 (Unaudited)

 

3

d.  

Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited)

 

4

e.  

Notes to Financial Statements as of June 30, 2017 (Unaudited)

 

5-8

         
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

9

         
Item 4.  

Controls and Procedures

 

10

         
Part II. Other Information      
         
Item 6.  

Exhibits

 

11

         
   

Signature

 

12

 

 
 

 

 

Part I – Financial Information

 

 

Item 1.

FINANCIAL STATEMENTS

 

CKX Lands, Inc.

Balance Sheets

June 30, 2017 and December 31, 2016

(Unaudited)

 

 

   

2017

   

2016

 

Assets

 

Current Assets:

               

Cash and cash equivalents

  $ 1,518,481     $ 1,081,188  

Certificates of deposit

    2,400,000       3,370,000  

Accounts receivable

    83,617       62,403  

Prepaid expense and other assets

    107,124       23,467  

Total current assets

    4,109,222       4,537,058  

Non-current Assets:

               

Certificates of deposit

    1,212,890       720,000  

Property and equipment:

               

Land

    7,074,846       7,075,345  

Timber

    2,083,408       2,072,368  

Building and equipment less accumulated depreciation of $73,841 and $73,374, respectively

    13,086       13,553  

Total property and equipment, net

    9,171,340       9,161,266  

Total assets

  $ 14,493,452     $ 14,418,324  
   

Liabilities and Stockholders’ Equity

 
   

Current Liabilities:

               

Trade payables and accrued expenses

  $ 140,650     $ 122,464  

Income tax payable

    3,085       9,993  

Total current liabilities

    143,735       132,457  

Non-current Liabilities:

               

Deferred income tax payable

    298,919       298,919  

Total liabilities

    442,654       431,376  

Stockholders’ Equity:

               

Common stock, no par value: 3,000,000 shares authorized; 1,942,495 and 1,942,495 shares issued, respectively

    59,335       59,335  

Retained earnings

    13,991,463       13,927,613  

Total stockholders’ equity

    14,050,798       13,986,948  

Total liabilities and stockholders’ equity

  $ 14,493,452     $ 14,418,324  

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
1

 

 

CKX Lands, Inc.

Statements of Income

Quarter and Six Months Ended June 30, 2017 and 2016

(Unaudited)

 

 

   

Quarter Ended

June 30,

   

Six Months Ended

June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Revenues:

                               

Oil and gas

  $ 151,693     $ 116,478     $ 333,362     $ 208,199  

Timber

    8,966       8,033       8,966       120,868  

Surface

    236,346       15,137       253,448       98,889  

Total revenues

    397,005       139,648       595,776       427,956  

Costs, Expenses and (Gains):

                               

Oil and gas

    15,483       13,115       33,049       25,254  

Timber

    3,167       5,121       6,107       18,662  

Surface

    7,990       15,347       24,848       38,525  

General and administrative

    115,377       127,750       250,233       229,615  

Depreciation

    233       --       467       1,751  

Gain on sale of land

    --       --       (2,891 )     --  

Total cost, expenses and (gains)

    142,250       161,333       311,813       313,807  

Income (loss) from operations

    254,755       (21,685 )     283,963       114,149  

Other Income:

                               

Interest income

    10,363       7,006       20,575       18,351  

Net other income

    10,363       7,006       20,575       18,351  

Income (loss) before income taxes

    265,118       (14,679 )     304,538       132,500  

Federal and State Income Taxes:

                               

Current

    51,638       (18,249 )     46,438       30,136  

Total income taxes

    51,638       (18,249 )     46,438       30,136  

Net Income

  $ 213,480     $ 3,570     $ 258,100     $ 102,364  
                                 

Per Common Stock, basic and diluted

                               

Net Income

  $ 0.11     $ 0.00     $ 0.13     $ 0.05  

Dividends

  $ 0.00     $ 0.00     $ 0.10     $ 0.00  
                                 

Weighted Average Common Shares Outstanding, basic and diluted

    1,942,495       1,942,495       1,942,495       1,942,495  

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
2

 

 

CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2017 and 2016

(Unaudited)

 

   

Total

   

Retained
Earnings

   

Capital
Stock
Issued

 

Six Months Ended June 30, 2017

                       

December 31, 2016 Balance

  $ 13,986,948     $ 13,927,613     $ 59,335  

Net income

    258,100       258,100       --  

Dividends Paid

    (194,250 )     (194,250 )     --  

June 30, 2017 Balance

  $ 14,050,798     $ 13,991,463     $ 59,335  
                         

Six Months Ended June 30, 2016

                       

December 31, 2015 Balance

  $ 13,809,767     $ 13,750,432     $ 59,335  

Net income

    102,364       102,364       --  

Dividends Reversion

    6,507       6,507       --  

June 30, 2016 Balance

  $ 13,918,638     $ 13,859,303     $ 59,335  

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
3

 

 

CKX Lands, Inc.

Statements of Cash Flows

Six Months Ended June 30, 2017 and 2016

(Unaudited)

 

 

   

2017

   

2016

 

Cash Flows from Operating Activities:

               

Net Income

  $ 258,100     $ 102,364  

Less non-cash expenses included in net income:

               

Depreciation, depletion and amortization

    467       1,751  

Gain on sale of land

    (2,891 )     --  

Change in operating assets and liabilities:

               

Increase in current assets

    (104,871 )     (86,066 )

Increase in current liabilities

    11,278       97,324  

Net cash provided from operating activities

    162,083       115,373  

Cash Flows from Investing Activities:

               

Certificates of deposit:

               

Purchases

    (1,212,890 )     (730,000 )

Maturity proceeds

    1,690,000       1,200,000  

Land, timber, equipment, and other assets:

               

Purchases

    (11,040 )     (326,254 )

Sales proceeds

    3,390       --  

Net cash provided from investing activities

    469,460       143,746  

Cash Flows from Financing Activities:

               

Dividends reversion (paid)

    (194,250 )     6,507  

Net cash from (used in) financing activities

    (194,250 )     6,507  

Net increase in cash and cash equivalents

    437,293       265,626  

Cash and cash equivalents:

               

Beginning

    1,081,188       2,767,424  

Ending

  $ 1,518,481     $ 3,033,050  
                 

Supplemental disclosures of cash flow information:

               

Cash payments (refunds) for:

               

Interest

  $ --     $ --  

Income taxes

  $ 55,000     $ 9,920  

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
4

 

 

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2017

(Unaudited)

 

Note 1:

Basis of Presentation

 

The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2016. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. Certain amounts have been reclassified to conform to the current period’s presentation, including oil and gas, timber, and surface, from general and administrative costs and expenses on the statements of income.

 

Interim results are not necessarily indicative of results for a full year. These financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2016 and Form 10-Q for the quarter period ended June 30, 2017.

 

Note 2: 

Income Taxes

 

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax years that remain subject to examination, generally three years after filing. The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required. No interest or penalties have been levied against the Company and none are anticipated.

 

Note 3. 

Company Operations

 

The Company’s operations are classified into three principal operating segments that are all located in the United States: oil and gas, timber and surface. The Company’s reportable business segments are strategic business units that offer income from different products all of which are derived from the Company lands. They are managed separately due to the unique aspects of each area.

 

Following is a summary of segmented operations information for the six months ended June 30, 2017 and 2016, respectively:

 

   

2017

   

2016

 

Revenues:

               

Oil and Gas

  $ 333,362     $ 208,199  

Timber

    8,966       120,868  

Surface

    253,448       98,889  

Total

    595,776       427,956  

Cost and Expenses:

               

Oil and Gas

    33,049       25,254  

Timber

    6,107       18,662  

Surface

    24,848       38,525  

Total

    64,004       82,441  

Income from Operations:

               

Oil and Gas

    300,313       182,945  

Timber

    2,859       102,206  

Surface

    228,600       60,364  

Total

    531,772       345,515  

 

 
5

 

 

CKX Lands, Inc.

Notes to Financial Statements - continued

June 30, 2017

(Unaudited)

 

Note 3.

Company Operations - continued

 

Other Expense before Income Taxes:

  $ (227,234 )   $ (213,015 )

Income before Income Taxes

    304,538       132,500  

Identifiable Assets, net of accumulated depreciation:

               

Oil and Gas

    --       --  

Timber

    2,083,408       1,598,058  

Surface

    --       --  

General Corporate Assets

    12,410,044       12,765,073  

Total

    14,493,452       14,363,131  
                 

Capital Expenditures:

               

Oil and Gas

    --       --  

Timber

    11,040       53,721  

Surface

    --       --  

General Corporate Assets:

    --       272,533  

Total

    11,040       326,254  
                 

Depreciation and Depletion:

               

Oil and Gas

    --       --  

Timber

    --       1,751  

Surface

    --       --  

General Corporate Assets

    467       --  

Total

  $ 467     $ 1,751  

 

There are no intersegment sales reported in the accompanying income statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Form 10-K for the year ended December 31, 2016. The Company evaluates performance based on income or loss from operations before income taxes excluding any nonrecurring gains and losses on securities held available-for-sale. Income before income tax represents net revenues less costs and expenses less other income and expenses of a general corporate nature. Identifiable assets by segment are those assets used solely in the Company's operations within that segment.

 

Revenue from customers representing 5% or more of total revenue for the six months ended June 30, 2017 and 2016, respectively are:

 

Count

   

2017

   

2016

 
1     $ 179,292     $ 112,835  
2       80,210       97,135  
3       54,154       63,449  
4       42,513       52,063  
5       38,333       51,020  
6       --       47,666  

 

 
6

 

 

CKX Lands, Inc.

Notes to Financial Statements - continued

June 30, 2017

(Unaudited)

 

Note 4.

Related Party Transactions

 

On April 17, 2017, the Company entered into an option to lease agreement (“OTL”) with Stream Wetlands Services, LLC (“Stream”). Under the terms of the OTL, Stream paid the Company $38,333 for an exclusive right to evaluate and market certain lands owned by the Company to their client for beneficial use purposes to compensate for wetlands impact through February 28, 2018. Stream may extend the OTL for up to three (3) successive periods of twelve (12) months. If Stream is chosen to perform their client’s project, the Company has agreed to put forth its best efforts to negotiate and enter into a mutually acceptable lease form. Due to the uncertainty of the contract award and project scope, we are unable to estimate the potential financial benefit, if any, to the Company. William Gray Stream, Company Director, is the president of Stream Wetlands Services, LLC.

 

 

Note 5:

Subsequent Event – Agreement to Purchase and Sell Real Estate

 

On July 13, 2017, the Company entered into an Agreement to Purchase and Sell Real Estate (“Agreement”) to purchase approximate 44,000 square feet of rentable commercial real estate located in Sulphur, Louisiana from MAJ of Sulphur, L.L.C. for $2,725,000. The commercial real estate consists of three separate buildings located on two separate parcels of land. The Agreement’s terms and conditions include, but are not limited to:

 

 

90-day feasibility period for the Company to determine, at its sole discretion, that these properties are suitable for its intended use.

 

 

Allows for an IRS 1031 Exchange, if elected, and

 

 

Final approval of the transaction by the Company’s board of directors.

 

 
7

 

 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

 

 

Revenue

 

Comparison of revenues for the six months ended June 30, 2017 and 2016 follows:

 

   

2017

   

2016

   

$ Change

   

% Change

 

Oil and Gas

    333,362       208,199       125,163       60.12 %

Timber

    8,966       120,868       (111,902 )     (92.58 %)

Surface

    253,448       98,889       154,559       156.30 %
                                 

Total

    595,776       427,956       167,820       39.21 %

 

Oil and Gas

 

CKX leases its property to oil and gas operators and collects income through its land ownership in the form of oil and gas royalties and lease rentals revenues. A breakdown of oil and gas revenues follows:

 

   

2017

   

2016

   

$ Change

   

% Change

 

Oil

    245,441       151,935       93,506       61.54 %

Gas

    80,254       53,942       26,312       48.78 %

Lease

    7,667       2,322       5,345       230.19 %
                                 

Total

    333,362       208,199       125,163       60.12 %

 

CKX received oil and/or gas revenues from 95 and 99 wells during the six months ended June 30, 2017 and 2016, respectively.

 

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.

 

   

2017

   

2016

 

Net oil produced (Bbl)(2)

    4,305       4,090  

Average oil sales price (per Bbl)(1,2)

  $ 50.40     $ 34.33  
                 

Net gas produced (MCF)

    23,746       23,982  

Average gas sales price (per MCF)(1)

  $ 3.38     $ 2.25  

 

 

Notes to above schedule:

 

(1) Before deduction of production and severance taxes.

(2) Excludes plant products.

 

 

Oil and gas revenues increased by $125,163 from 2016 revenues. As indicated in the schedule above, the increase was due to an increase in oil production as well as an increase in the average sales prices for both oil and gas and lower gas production. Increased mineral lease activity resulted in increased lease revenue. Oil and gas revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year and quarter to quarter.

 

 
8

 

 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Management believes oil and gas activity is driven by current and forecasted commodity prices, demand for oil and gas, and upstream and downstream industry activity. Based on available public information, management believes that oil and gas activity which includes oil and gas production as well as lease rentals will continue to be improved when compared to 2016 reported amounts.

 

Timber revenues are down due to no harvesting activities by timber companies on outstanding stumpage agreements. We believe that due to heavy rains during the quarter, timber harvesting activities have not occurred. Timber revenues are dependent on timber companies’ activities, are not predictable and can vary significantly from year to year and quarter to quarter.

 

Surface revenue increase over 2016 revenues primarily due to a pipeline right of way and an option to lease agreement. As previously noted, these types of agreements are not unusual for the Company; however, revenue from these types of agreements are not predictable and can vary significantly from year to year and quarter to quarter.

 

Costs and Expenses

 

Oil and gas costs and expenses, increased by $7,795 in 2017. With the increase in revenues from oil and gas, and lease, the increased costs were expected.

 

Timber costs and expenses decreased by $12,555. With the decrease in timber revenues, this decrease was expected. The remaining timber costs and expenses relate to recurring timber and timberland maintenance.

 

Surface costs and expenses decreased by $13,677. This decrease is due to the change in how the Company obtains property management services.

 

General and administrative costs and expenses increased by $20,618 primarily due to increased legal fees related to SEC reporting, increased officer salaries, and increased director fees.

 

 

Financial Condition

 

Current assets totaled $4,109,222 and total current liabilities equaled $143,735 at June 30, 2017.

 

In the opinion of management, cash and certificates of deposit are adequate for projected operations and possible land acquisitions.

 

The Company declared and paid a ten cents per common share dividend during the quarter ended March 31, 2017. During the first quarter of each future calendar year, the Company anticipates determining if a dividend will be declared. In determining whether a dividend will be declared, the board of directors will take into account the Company’s prior fiscal year’s cash flows from operations and current economic conditions among other information deemed relevant.

 

Issues and Uncertainties

 

This quarterly report contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.

 

Revenues from oil and gas provide a significant portion of the Company’s net income and cash flows. These revenues come from wells operated by other companies which CKX Lands, Inc. owns a royalty interest. Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of these other companies.

 

 
9

 

 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Item 3.

Not applicable.

 

Item 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the President, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

 

Changes in Internal Control Over Financial Reporting

 

There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.

 

 
10

 

 

Part II. Other Information

 

Item 1 – 5.

Not Applicable

 

Item 6.

EXHIBITS

 

 

 

3.1

Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.

 

 

3.2

Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.

 

 

3.3

By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-Q for the quarter ended March 31, 2013.

 

 

10

Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.

 

 

10.1

Agreement to Purchase and Sell Real Estate of approximately 880 acres in Calcasieu Parish, Louisiana effective May 11, 2016 is incorporated by reference to Form 10-Q filed August 8, 2016.

 

 

10.2

Agreement to Purchase and Sell Real Estate of commercial real estate in Sulphur, Louisiana effective July 13, 2017.

 

 

31

Certification of Brian R. Jones, President and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

 

32

Certification of President and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

101.INS**

XBRL Instance

 

101.SCH**

XBRL Taxonomy Extension Schema

 

101.CAL**

XBRL Taxonomy Extension Calculation

 

101.DEF**

XBRL Taxonomy Extension Definition

 

101.LAB**

XBRL Taxonomy Extension Labels

 

101.PRE**

XBRL Taxonomy Extension Presentation

 

**XBRL

information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
11

 

 

************************************

Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

CKX Lands, Inc. 

 

 

 

 

 

Date: August 3, 2017

 

/s/ Brian R. Jones 

 

 

 

Brian R. Jones

 

 

 

President and Treasurer

 

 

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